The Bangko Sentral ng Pilipinas (BSP) yesterday said inflation for the month of July may have slowed down to 2.2 percent from 2.5 percent in June.
Benjamin Diokno, BSP governor, said “slightly lower electricity rates in Meralco-serviced areas and the continued appreciation of the peso” may have caused the slowdown.
However, Diokno noted that upward price pressures “due to higher domestic petroleum prices as well as the uptick of rice prices for (July)” may have caused inflation to accelerate up to 3 percent.
“The BSP will continue to monitor economic and financial developments to ensure that monetary policy settings remain consistent with the objective of price stability conducive to a balanced and sustained growth of the economy,” Diokno said.
Prices of major commodities accelerated in June as most businesses reopen after almost three months of being under strict quarantine measures imposed by the government to combat the coronavirus disease 2019 (COVID-19).
June’s 2.5 percent brought the year-to-date average to 2.5 percent. It was faster than the 2.1 percent posted in May and April’s 2.2 percent.
Diokno said the June figure is consistent with the BSP’s prevailing assessment that “inflation pressures remain limited due largely to the adverse impact of the Covid-19 pandemic on the domestic and global economic conditions.”
The BSP’s survey of inflation expectations of private sector economists as of June 2020 indicates lower mean inflation forecasts over the policy horizon relative to the March 2020 survey.
Economists expect 2020 inflation to be at the lower end of the target range, with risks to the outlook leaning towards the upside with the anticipated recovery following the relaxation of quarantine measures.
A key downside risk to the economists’ inflation outlook is the subdued domestic demand given high unemployment resulting from the closure of businesses.
The BSP cut its key policy interest rate by 50 basis points (bps) in an off-cycle meeting in April. A follow-through interest rate cut of another 50 bps was decided in the scheduled June policy meeting.
In deciding to reduce the key policy interest rate in the second quarter, the BSP considered the benign inflation environment that allowed it to maintain an accommodative stance to mitigate the impact of the COVID-19 pandemic on the Philippine economy.
For 2020 up to 2022, Diokno said “the overall balance of risks to growth is leaning toward the downside due mainly to the potential impact of a deeper and more disruptive pandemic and global demand conditions.”